![]() ![]() However, if a falling wedge forms within a clear uptrend, it is sometimes also analyzed as a trend continuation signal. Generally, the falling wedge is analyzed as signaling a reversal in the price trend. Does the falling wedge pattern indicate a trend continuation or a reversal? The falling wedge pattern is typically seen as a bullish formation, signaling a potential price movement upwards. Is the falling wedge pattern bullish or bearish? Now, let’s take a quick look at some of the most common questions traders have regarding the falling wedge candlestick pattern. In the image below, the blue line represents the distance between the two trend lines at the pattern’s formation and the take profit would be set at the dotted line. Since the exact point of a falling wedge pattern's formation is subject to some interpretation, this is obviously not an exact science, but it's a good starting point when trying to determine where your take profit should be. If you add that distance to the point of the breakout, you can arrive at your take profit point. Taking profitsįor your take profit, you can measure the distance between the two trend lines when the falling wedge pattern first formed. The stop loss can be set quite close to the upper trend line. If the price moves downwards and closes within the falling wedge, the pattern is generally considered invalidated. If you’re going long after the price breaks upwards from a falling wedge, consider setting up a stop loss within the falling wedge pattern. Traders who are trading a daily timeframe typically wait for a daily close above the falling wedge to confirm that it is indeed a breakout. This could predict a surge in the price if the price breaks out upwards from the pattern. When a falling wedge pattern emerges during a general downtrend, it indicates a decrease in the downward momentum. If a falling wedge pattern forms while the price of an asset is in an uptrend, it is typically analyzed as a signal that the uptrend will continue once the pattern resolves. Ideally, you want to see descending trading volume as the wedge forms, which will allow for a big volume expansion and a stronger breakout once the upper trend line is pierced. When it comes to the falling wedge pattern, descending trading volume is also an important factor to consider. While the reaction lows should be getting lower, the price drops should be getting shallower. This results in two trend lines that are converging towards each other, forming a pattern that resembles a cone. The same applies for the lower trend line - there should be two, ideally three, reaction lows, with each lower than the previous. Each subsequent reaction high should be lower than the previous. Ideally, there should be at least two reaction highs forming the upper trend line, but three is better. How to identify a falling wedge candlestick pattern? In a clean example of a falling wedge pattern, there is a breakout above the upper trend line, which happens when the two trend lines are close to converging. Please note that besides the price action, a proper falling wedge pattern is also characterized by declining trading volume. Here is an example of what a falling wedge candlestick pattern looks like. Generally, a falling wedge is analyzed as a bullish chart pattern that indicates a reversal in the market. The falling wedge is a common price chart pattern characterized by converging trend lines and a series of lower lows accompanied by lower highs.
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